SodaStream Has Major Problems: Should Investors Be Worried?

SodaStream is having a tough time selling its devices in the United States, and competition from Keurig Green Mountain in 2015 won't help. The Keurig device will feature brands from Coca-Cola, and with SodaStream lacking a major install base in the U.S. so far, the market is still up for grabs.

Jul 8, 2014 at 5:00PM

Shares of home soda-machine company SodaStream (NASDAQ:SODA) are hitting new 52-week lows, with shares down more than 50% over the past year. SodaStream's growth story has hit a snag, with its push into the United States suffering major setbacks, and a big competitor in the form of Keurig Green Mountain's (NASDAQ:GMCR) upcoming Keurig Cold home carbonation system promises to shake up the market sometime in 2015. Is this just the beginning of SodaStream's decline, or is this decline an opportunity to load up on shares?

Problems in the U.S.
SodaStream's growth story hinges on strong growth in the United States. The company has been selling home carbonation systems in Europe for decades, and in fact sales outside of the United States are still going strong. In the most recent quarter, sales in Western Europe rose by 17% year over year, while sales in the Asia-Pacific region jumped by 28%. But sales in the Americas plummeted by 28%, a massive decline in what is supposed to be SodaStream's most important market.

Part of the problem was excess inventory left over from a tough holiday season. Sales of the company's starter kits, which include a machine as well as some flavors and carbonators to get started, plummeted by 28%. Sales of consumables did far better, rising 15% year over year, and the company still expects to grow total sales by 15% in 2014 despite basically flat revenue during the first quarter. This suggests that the company expects to work through its inventory issues relatively soon.

Serious competition is coming in 2015
Starting next year, SodaStream will have a major competitor to deal with. Earlier this year Coca-Cola and Keurig Green Mountain announced a partnership to bring a competing home carbonation system to market, replete with products from Coca-Cola's extensive portfolio. While SodaStream has partnered with many beverage companies, the major soda companies have been holdouts.

Only about 1% of households in the United States own a SodaStream machine compared to the double-digit rates that the company has achieved in some European companies. This means that the market is still very much up for grabs, and with both Coca-Cola and Keurig having strong, well-known brands, SodaStream has a lot to worry about.

Still a niche market
Home carbonation systems are still a niche market, and I have serious doubts that that will ever change. The problem is that these machines don't actually solve a problem or eliminate an inconvenience. I'll compare a SodaStream to one of Keurig's K-cup coffee machines to illustrate what I mean.

While Keurig's K-cups were once considered a fad, the machines have proven to be extremely popular, with the company selling 1.8 million brewers in the last quarter alone. Using K-cups to make coffee is more expensive than using a traditional coffee machine, but K-cups eliminate the inconvenience of having to measure out ground coffee, an often messy affair. In other words, K-cups solve a problem for consumers, and although they introduce higher costs, millions have chosen convenience over cost.

Home soda makers don't really solve a problem. While it may seem convenient to be able to make soda at home, tacking on soda to a grocery trip and having the drink available immediately instead of having to make it yourself is a far more convenient proposition. Coupled with the fact that SodaStream doesn't begin to save a consumer money compared to buying soda at the store until they drink hundreds of liters, the device lacks a compelling reason to buy it, at least in the United States. Soda prices are higher in many other countries, which helps explain why adoption rates are higher in those countries. But in the United States, SodaStream offers savings for only the heaviest of soda drinkers.

What does all this mean for investors?
Home soda machines remain a niche device, and the low cost of store-bought soda in the United States compared to other countries is working to keep it that way. SodaStream is doing very well in other countries, but the growth story in the United States doesn't seem nearly as compelling. Competition from Keurig should not be ignored, especially since SodaStream's market penetration is so low, and the strength of Coca-Cola's brand may be all it takes to propel the device past SodaStream in the United States.

SodaStream now trades at a P/E ratio of around 17, and the stock is certainly far less expensive than it was in 2013. But SodaStream has no competitive advantage in the United States. It has no double-digit percentage install base like it has in certain European countries, and that will make it all the easier for Keurig to swoop in and steal market share. I just don't see a compelling reason to invest in SodaStream.

Leaked: This coming device has every company salivating
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we buy goods, but potentially how we interact with the companies we love on a daily basis. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns, you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Keurig Green Mountain and SodaStream. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information